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(H.R.1575) Legislation giving the Attorney General the authority to investigate and challenge certain bonuses paid to entities receiving federal “bail out” funds - - on suspending the usual House rules and passing the legislation

H.R. 1575 was designed to give the Attorney General the authority to investigate and challenge certain bonuses paid to entities receiving federal “bail out” funds. The legislation was developed in response to reports about multimillion dollar bonuses going to executives of AIG. The federal government was spending hundreds of billions of dollars to keep AIG and other banks solvent under the Troubled Asset Relief Program (“TARP”). Reports of these bonuses created protests in Congress. The measure allowed the Attorney General to challenge certain bonuses, paid up to seven months earlier, by entities receiving $5 billion or more in direct federal capital investments. It also authorized the Attorney General to subpoena information relevant to those bonuses. This was a vote on a motion to suspend the regular House rules and pass H.R.1575.

Rep. Conyers, who was leading the support for the bill, characterized it as an effort “to safeguard taxpayer funds and rein in the out-of-control compensation and bonus abuses by companies that have used Federal Government-supplied capital to stay out of bankruptcy.” He noted that its terms were based on existing federal fraudulent transfer laws. In anticipation of objections to the bill on constitutional grounds, Conyers entered into the Congressional Records opinions of legal experts supporting its constitutionality.

A motion to suspend the rules and pass a bill is a procedural mechanism that is usually employed to gain approval for measures that the House leadership deems not to be very controversial. There is a limited time period allowed for debate. Amendments cannot be offered. A two thirds vote is required to approve the motion and pass a bill, rather than the usual majority.

Rep. Smith (R-TX) expressed the reason for the opposition to the measure when he argued: “(I)n the rush to respond to the bonuses paid to AIG executives . . . The Judiciary Committee has held no hearings, heard no expert witnesses, and provided no reasoned evaluation of this bill during the normal legislative process. . . Now (this bill) has been rewritten in the dark . . . (and) sent prematurely to the floor. . .”

Smith then noted that the bonuses were permitted under the economic stimulus package Congress had recently passed, and asked: “(H)ow could bonuses that Congress and the President specifically ratified suddenly be fraudulent? If they were not fraudulent, how can this be anything other than an unconstitutional taking of contractual rights?” Smith also argued that the practice of recouping bonuses after the fact would “undermine the Federal Government's ability to recruit bank rescue participants, so this bill will hinder a successful economic recovery rather than contribute to it.”

Rep. Cohen (D-TN) responded to Smith by saying the bill “does not rewrite contracts whatsoever. It just gives a court the opportunity (to determine whether certain) compensation was a fraudulent transfer and was excessive . . . It shocks the public conscience, and any of those bonuses should be void against public policy, and because they would be void against public policy, this Congress appropriately acted with legislation.” Smith countered by claiming that the bill has the unfortunate effect of leaving the question of fair compensation to hundreds of federal district court judges throughout the country.”

The motion failed on a vote of 223-196. Although the measure received a majority of the vote, under the procedure employed here in which the rules would be suspended a two-thirds vote is required. Two hundred and fourteen Democrats and nine Republicans voted “aye”. One hundred and sixth-five Republicans and thirty-one Democrats voted nay. As a result, Congress did not pass the bill that would have given the Attorney General the authority to investigate and challenge certain bonuses paid to entities receiving federal “bail out” funds.